Foreclosure Accounting Requires Admissible Records, and Unexplained Delay Can Warrant Interest Tolling

1. Introduction

In this mortgage foreclosure appeal, the Second Department distinguished a successor mortgage holder’s right to replace the named plaintiff from its obligation to prove the amount recoverable through competent evidence. It also reaffirmed that a lender cannot necessarily collect interest attributable to unexplained delays in prosecuting a foreclosure, including delays caused by its predecessors.

The appellant, Hubbard II Realty Corp. (“Hubbard”), acquired the Brooklyn property after the foreclosure action began and later intervened. The respondent, Specialized Loan Servicing, LLC (“SLS”), acquired the mortgage and note through a succession of assignments. SLS obtained an order substituting it as plaintiff, confirming a referee’s computation, and authorizing foreclosure and sale. Hubbard challenged that relief and sought to exclude interest accruing during periods of prosecutorial delay.

The appellate court upheld SLS’s substitution and rejected Hubbard’s argument that the absence of a referee’s hearing independently required reversal. Nevertheless, it rejected the referee’s report because the supporting affidavit failed to establish the admissibility of records created by other entities. It also excluded interest for three specified periods of unexplained delay.

The decision principally applies established precedent rather than announcing an entirely new doctrine. Its significance lies in bringing together three distinct requirements: a valid transfer of the mortgage and debt, admissible proof of the foreclosure balance, and equitable justification for the interest claimed.

2. Background and Procedural History

HSBC Mortgage Corporation (USA) commenced the action in June 2010 against Amre Mohassib and Fifi S. Mohassib, among others, to foreclose a mortgage on Brooklyn real property. The ensuing proceedings involved several assignments and repeated efforts to obtain a foreclosure judgment.

Hubbard appealed both the May 22, 2024 order and the order and judgment of foreclosure and sale entered that same day.

3. Summary of the Opinion

The Second Department reached five principal conclusions:

1. The separate appeal from the order had to be dismissed. The relevant issues nevertheless were reviewable on the appeal from the order and judgment of foreclosure and sale.
2. SLS was properly substituted as plaintiff. Its documentary submission established an assignment of both the mortgage and the underlying note.
3. The absence of a referee’s hearing did not establish prejudice. Hubbard had an opportunity to present evidence and objections directly to the Supreme Court in opposition to confirmation.
4. The referee’s computation lacked sufficient evidentiary support. The SLS employee’s affidavit did not establish a proper business-records foundation for records created by other entities.
5. Interest had to be tolled for specified periods. SLS did not explain unreasonable delays in prosecuting the action.

The court modified the foreclosure judgment by denying confirmation and foreclosure relief and rejecting the referee’s report. It left SLS’s substitution intact and directed that interest not accrue for:

• March 2012 to March 2013;
• March 2015 to April 2016; and
• January 2023 to February 2024.

The matter was remitted for a new report computing the amount due on the note, further proceedings under CPLR 4403, and entry of an appropriate amended judgment. No costs or disbursements were awarded.

4. Analysis: Precedents Cited

A. Appellate jurisdiction and review

• Deutsche Bank Natl. Trust Co. v Cumbe, 217 AD3d 832, 833, supported the conclusion that the portion of the order effectively denying Hubbard’s interest-tolling application was not appealable as of right under CPLR 5701(a)(2). Because leave to appeal had not been granted, that portion could not independently support the appeal from the order. This procedural ruling did not prevent review through the foreclosure judgment.

• Matter of Aho, 39 NY2d 241, 248, supplied the rule that entry of a final judgment terminates the right to appeal directly from an intermediate order in the action. Together with CPLR 5501(a)(1), it also explained why the underlying issues remained reviewable on the appeal from the judgment. The dismissal of the separate appeal therefore was not an affirmance of all the intermediate rulings.

B. Substitution following assignment

• Austin 26 Dental Group, PLLC v Sino Northeast Metals [U.S.A.], Inc., 230 AD3d 545, 548, established that substitution of an assignee may be allowed upon evidence transferring the mortgage and underlying debt. Applying that principle under CPLR 1018, the court found SLS’s March 25, 2021 assignment sufficient.

• Brighton BK, LLC v Kurbatsky, 131 AD3d 1000, 1001, reinforced the sufficiency of the assignment evidence supporting substitution. These authorities concerned who could continue the action; they did not relieve SLS of proving the amount owed.

C. Referee hearings and confirmation standards

• HSBC Bank, USA, N.A. v Santella, 243 AD3d 897, 899–900, performed several important roles. It supported the absence-of-prejudice standard for a referee’s failure to conduct a hearing, the requirement that a referee’s findings be substantially supported by the record, and the court’s equitable authority over interest. Its combined use shows that procedural fairness, evidentiary sufficiency, and equitable recovery are separate inquiries.

• Bank of Am., N.A. v ABC Realty Holdings, Inc., 241 AD3d 615, 616–617, supported the conclusion that the lack of a referee’s hearing does not alone require reversal when the objecting party can submit evidence and questions directly to the court. Hubbard had that opportunity when opposing SLS’s motion.

• LFC Acquisition 3, LLC v Encino Homes Corp., 227 AD3d 1060, 1062, provided additional support for finding no prejudice where objections could be presented during judicial review of the report. The relevant concern was a meaningful opportunity to challenge the computation, not the mere absence of a separate hearing.

• Citimortgage, Inc. v Hassanin, 242 AD3d 1169, 1171, supplied the confirmation standard: a referee’s report should be confirmed when its findings are substantially supported by the record and the referee has clearly defined the issues and resolved credibility matters. The evidentiary defects here prevented that standard from being met.

D. Personal knowledge and records originating with other entities

• Nationstar Mtge., LLC v Lewis, 238 AD3d 777, 778–779, supported two connected propositions. Reviewing records maintained in the ordinary course of business does not itself give an affiant personal knowledge of the underlying transactions. A referee’s report relying on inadequately supported proof also lacks substantial record support. This authority directly underpinned rejection of the computation.

• PS Funding, Inc. v 1641 Park Place, LLC, 239 AD3d 681, 682, established that merely filing documents received from other entities—even in the regular course of business—does not make those documents admissible business records. SLS’s possession of predecessor records was therefore insufficient by itself.

• U.S. Bank N.A. v Winnie Realty Group, LLC, 237 AD3d 871, 873, identified alternative foundations for admitting another entity’s records: knowledge of the maker’s business practices and procedures, or proof that the recipient incorporated the records into its own records and routinely relied on them in conducting business.

• Bank of N.Y. Mellon v Gordon, 171 AD3d 197, 209, supplied additional authority for those alternative foundations. Its significance is that predecessor records are not categorically excluded; their admissibility depends on an adequate evidentiary foundation.

• LNV Corp. v Almberg, 246 AD3d 896, 900–901, supported application of those principles to the deficient affidavit. The SLS employee did not establish the necessary knowledge of the other entities’ recordkeeping practices or assert incorporation and routine reliance sufficient to admit their records.

E. Equitable interest relief and preservation

• Wells Fargo Bank, N.A. v Doran, 244 AD3d 1275, 1278, supported tolling and cancellation of interest for unexplained delay in prosecuting a mortgage foreclosure. The court relied on it both for the governing principle and for the exercise of discretion granting relief during the three identified periods.

• Wells Fargo Bank, N.A. v Daniel, 231 AD3d 899, 901–902, established that interest relief can encompass unexplained delay attributable to a plaintiff’s predecessor in interest. SLS’s later acquisition therefore did not insulate the loan’s interest calculation from earlier prosecutorial inactivity.

• U.S. Bank N.A. v 18 Wilkshire Circle, LLC, 233 AD3d 910, 913, supported declining to consider Hubbard’s remaining contention because it was raised for the first time on appeal. The opinion does not identify that contention, and no conclusion about its substance can properly be drawn.

5. Analysis: The Court’s Legal Reasoning

A. Assignment and accounting are different questions

Under CPLR 1018, the court could permit SLS to replace the named plaintiff after the transfer of the relevant interest. The assignment expressly included the mortgage and note, providing the necessary basis for substitution.

But an assignment proves a transfer of rights, not the accuracy of a claimed balance. SLS could therefore be the proper party to continue the case while still lacking admissible evidence supporting the requested judgment amount. The appellate court’s decision to uphold substitution but reject the report reflects that distinction.

B. A meaningful opportunity to object can eliminate hearing-related prejudice

The court did not treat a referee’s failure to give notice and hold a hearing as an automatic ground for undoing a foreclosure judgment. Instead, it asked whether Hubbard suffered prejudice from being unable to submit evidence directly to the referee.

Because Hubbard could raise questions and present evidence to the Supreme Court when opposing confirmation, the missing hearing did not independently justify reversal. This is a fact-sensitive prejudice analysis, not a categorical declaration that referee hearings are unnecessary in every case.

Importantly, the opportunity to object did not cure defects in SLS’s proof. A procedurally adequate review process cannot make unsupported evidence sufficient.

C. The business-records exception required more than possession and review

SLS’s employee stated the amounts owed based on a review of records. Some attached records, however, had been created by other entities. Under CPLR 4518(a), those documents needed a proper foundation for admission as business records.

The court rejected the proposition that reviewing regularly maintained records automatically gives an affiant personal knowledge of the transactions recorded. It then examined whether the records were admissible through a recognized business-records foundation.

For documents originating elsewhere, SLS could have established either the affiant’s knowledge of the original maker’s business practices or SLS’s incorporation and routine business reliance. The affidavit did not supply the necessary foundation. Consequently, the referee’s findings were not substantially supported by the record.

The holding concerns proof, not a finding that the records were fabricated or that the debt did not exist. The court ordered a new computation rather than dismissing the foreclosure action.

D. Equity limits interest generated by unexplained prosecutorial delay

Foreclosure invokes the court’s equitable powers. CPLR 5001(a) recognizes judicial discretion over interest in equitable actions, and the cited cases permit adjustment according to the particular circumstances, including wrongful conduct and unexplained delay.

The court did not require a separate finding of intentional misconduct before granting relief. SLS’s failure to explain unreasonable periods of inactivity was sufficient under the circumstances. Nor did the court limit its analysis to delay occurring after SLS became the assignee: predecessor-caused delay could also justify relief.

The remedy was targeted. Interest was excluded for three identified intervals, not for the entire duration of the litigation. The opinion therefore does not establish automatic interest cancellation whenever a foreclosure takes a long time.

E. The remedy required a reconstructed calculation

The appellate disposition addressed two independent problems: an inadequately supported accounting and interest that equity would not permit SLS to collect for specified periods. The new report must reflect both the evidentiary requirements and the tolling determination.

Further proceedings under CPLR 4403 will permit judicial review of the new report before an appropriate amended judgment is entered. The court did not require a new referee hearing merely because the earlier report was rejected.

6. Potential Impact

For lenders, servicers, and assignees

The decision underscores the importance of preparing affidavits that address the source and admissibility of loan records, particularly after multiple transfers. A reliable assignment chain does not substitute for a reliable evidentiary foundation supporting the account balance.

It also highlights a due-diligence issue for purchasers of distressed loans: historical litigation delay can affect recoverable interest even when the current holder did not cause that delay. Assignees should be prepared to explain relevant periods of inactivity rather than relying solely on their acquisition dates.

For borrowers and property-owner intervenors

Challenges directed to the actual evidentiary foundation may be more consequential than a procedural objection to the absence of a referee’s hearing when the court has otherwise allowed a meaningful opportunity to respond. The case also demonstrates that an intervening property owner can obtain interest relief tied to unexplained prosecution delays.

The preservation ruling remains important: arguments should be presented below rather than introduced for the first time on appeal.

For courts and future foreclosure proceedings

The opinion encourages separate treatment of substitution, procedural prejudice, accounting proof, and equitable interest. Success on one issue does not resolve the others. It also illustrates a proportionate remedy: preserve a supported substitution, reject an unsupported computation, remove inequitable interest, and remit for a properly supported determination.

The holding should not be extended to invalidate all predecessor records, require a hearing in every reference, or cancel interest merely because litigation has been lengthy. Each question remains dependent on the foundation supplied, the opportunity to be heard, and the explanation for particular delays.

7. Complex Concepts Simplified

Assignment of the mortgage and note

A transfer of the mortgage security and the underlying debt to another holder. Here, the transfer supported allowing SLS to continue as plaintiff.

Substitution and amendment of the caption

Changing the named plaintiff to reflect the transferred interest. It does not itself establish how much money is owed.

Referee’s report

A court-appointed referee’s calculation of the amount due. The court must review the report before adopting it as the basis for judgment.

Business-records foundation

The evidentiary showing needed to admit business records for their contents. Possessing another company’s records is not, by itself, enough.

Incorporation and routine reliance

A basis for admitting outside records when a business has made them part of its own records and regularly uses them in its operations, supported by appropriate testimony.

Prejudice

A meaningful disadvantage in presenting a position. Hubbard’s opportunity to submit evidence to the court defeated its claim that the missing referee hearing alone required reversal.

Interest tolling

Excluding interest for designated periods. Here, it concerned the loan’s accruing interest, not a statute-of-limitations deadline or cancellation of principal.

Remittal

Returning the case to the trial court for additional proceedings—in this instance, a new accounting and subsequent judicial review.

8. Conclusion

HSBC Bank USA, N.A. v Mohassib confirms that entitlement to continue a foreclosure action does not establish entitlement to the amount demanded. An assignee must support its accounting with admissible evidence, including an adequate foundation for predecessor records.

The decision also reinforces the equitable limits on interest: unexplained delays can reduce recovery even when attributable to earlier holders. Its practical result is a new, properly supported computation excluding interest for the specified periods—not dismissal of the foreclosure or invalidation of SLS’s assignment.